Tax Law (Questions About Taxes)/Home Office Deduction - New House

QuestionQUESTION: I take a home office deduction, 30% of current South Carolina mortgaged house for a self employed massage business, I massage clients here and one day a week travel to clients houses. Spouse and I are buying a less expensive house in North Carolina for cash and will be living there for our kids to start kindergarten. I will be handling administrative duties, bookkeeping, etc.., from the new NC house and will continue seeing clients in SC as before. Going forward, can I continue to take the 30% home office deduction on what will now be a secondary residence kept primarily if not solely to run the business? Is the SC house now 100% deductible? Can I deduct travel expenses for the travel from the new NC house to the business at the SC house? The houses are 88 miles apart, I will see clients every other week, and be traveling between the houses 3-4 times in that week.

ANSWER: Shelley,

You raise a number of issues that really can't be addressed in a volunteer forum of this nature.

Essentially, the SC home will no longer be an administrative office, but a location where massage is performed. Are there any zoning issues involved with this? Is it now going to be used 100% for business? Should the business rent it from you, or should you sell it to the business? You can't have two home offices, so should you take a home office for the NC home since you are doing admin there?

Your tax home will be considered to be NC, so your travel to SC to perform work duties is considered commuting and not deductible.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: There are no zoning issues. It could be used 100% as a business house, if that is beneficial, can my own sole proprietorship rent it from me? I thought the business would need to be incorporated to rent it from me.

It sounds like the best option is to keep doing the admin and massage in the 30% of the original house and live in NC. Will it still count as a home office since it is not my primary residence?

The expenses at the NC house are negligible, so hopefully I can deduct the SC house expenses related to the business. Thank you for your insight.

AnswerSince it is a sole proprietorship, you can't rent it to yourself. Just deduct the costs associated with the house on schedule C as though it was owned by the business. Keep very good documentation regarding its 100% business use. For example, you can't sleep there, that would personal use.

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE.
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I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.